Arturo FLORES, et al., Appellants, v. MILLENNIUM INTERESTS, LTD., et al., Appellees.
No. 04-1003.
Supreme Court of Texas.
Decided Sept. 30, 2005.
Rehearing Denied March 31, 2006.
185 S.W.3d 427
Argued Feb. 15, 2005.
H. Miles Cohn, Sheiness Scott Grossman & Cohn, L.L.P., and Michelle Friery, Houston, for Appellee.
J. Ken Nunley, Nunley Davis Jolley & Hill, L.L.P., Boerne, Vincent L. Hazen, Hazen & Terrill, P.C., Bill Davis, Office of Atty. Gen., Austin, Deborah G. Hankinson, Law Offices of Deborah G. Hankinson PC, Dallas, for Amicus Curiae
Justice MEDINA delivered the opinion of the Court joined by Justice HECHT, Justice O‘NEILL, Justice WAINWRIGHT, Justice JOHNSON, and Justice WILLETT.
This case comes to us on certified questions from the United States Court of Appeals for the Fifth Circuit asking us to construe
- If a seller under a contract for deed sends a purchaser a statement under
§ 5.077(a) that omits any of the applicable information listed in§ 5.077(b) of the Texas Property Code , specifically in the information required by§ 5.077(b)(1) or (3), or both, is the seller liable to the purchaser for $250 per day liquidated damages as set forth in§ 5.077(c) ? - If a seller under a contract for deed sends a purchaser a statement that omits information required by
§§ 5.077(b)(1) and (3), must the purchaser prove actual harm or injury to recover liquidated damages under the statute? - In 2001, 2002, and 2003, did the statutorily defined “exemplary damages” in
chapter 41 of the Texas Civil Practice and Remedies Code encompass the statutorily defined “liquidated damages” in§ 5.077 of the Texas Property Code , so that to recover under§ 5.077 of the Property Code a purchaser would have to comply with§ 41.003 of the Civil Practice and Remedies Code ?
390 F.3d 374, 376-77 (5th Cir. 2004) (per curiam). The Fifth Circuit has further disclaimed “any intention or desire” that we “confine [our] reply to the precise form or scope of the questions certified.” Id. at 377.
We conclude that the annual statements in this case were timely under
I
Millennium Interests, Ltd. develops residential subdivisions in the Houston area, financing most of its sales either with traditional mortgages or executory contracts, also known as contracts for deed. A contract for deed, unlike a mortgage, allows the seller to retain title to the property until the purchaser has paid for the property in full. Such sales are regulated by statute which, among other things, requires that the seller provide the purchaser with an annual accounting statement on or before January 31 each year. See
The purchaser‘s statutory right to liquidated damages and attorney‘s fees under a contract for deed is relatively new, added in 2001, when the Legislature renumbered and revised the statutes applicable to such contracts.1 Previously, the statute had allowed the purchaser to deduct 15% of his or her monthly payments beginning on the date on which the required information was demanded until the date on which it was provided.2 The 2001 amendments, however, changed this to provide:
(c) A seller who fails to comply with subsection (a) is liable to the purchaser for:
(1) liquidated damages in the amount of $250 a day for each day after January 31 that the seller fails to provide the purchaser with the statement; and
(2) reasonable attorney‘s fees.
(a) The seller shall provide the purchaser with an annual statement in January of each year for the term of the executory contract. If the seller mails the statement to the purchaser, the statement must be postmarked not later than January 31.
- the amount paid under the contract;
- the remaining amount owed under the contract;
- the number of payments remaining under the contract;
- the amounts paid to taxing authorities on the purchaser‘s behalf if collected by the seller;
- the amounts paid to insure the property on the purchaser‘s behalf if collected by the seller;
- if the property has been damaged and the seller has received insurance proceeds, an accounting of the proceeds applied to the property; and
- if the seller has changed insurance coverage, a legible copy of the current policy, binder or other evidence that satisfies the requirements of
Section 5.070(a)(2) .
In July 2000, Millennium retained Concord Servicing Corp. to perform accounting and reporting services for its financing transactions. Concord provided two annual statements to each of Millennium‘s customers, an “Annual Interest Statement” and an “Escrow Analysis.” Unfortunately, these statements failed to include two items required by the statute, the “amount paid under the contract” and “the number of payments remaining under the contract.”3
Consequently, three purchasers sued Millennium for these omissions in their 2001 and 2002 annual statements, seeking statutory damages. At the summary judgment hearing in May 2003, these purchasers claimed that they were entitled to statutory damages greatly in excess of the purchase prices of their respective properties. The federal district court disagreed, however, rendering summary judgment for Millennium. The court concluded that:
- Millennium had timely provided annual statements to the purchasers;
- Section 5.077(c) permits the recovery of liquidated damages of $250 per day only for violation of Section 5.077(a), which requires the timely mailing of annual statements to purchasers under a contract for deed;
- Section 5.077(c) does not similarly provide for liquidated damages for violation of Section 5.077(b), which delineates the contents of an annual statement; and
- Because Section 5.077(c) does not provide for liquidated damages when a statement is timely provided, the plaintiffs were not entitled to recover in the absence of proof of actual damages.
273 F. Supp. 2d 899, 901. The purchasers appealed the summary judgment in Millennium‘s favor to the Fifth Circuit, which certified the aforementioned questions to us.
II
The first certified question asks whether section 5.077(c)‘s liquidated damages are owed when a seller delivers a timely annual statement that omits some of the information listed in subsection (b) of that statute. The plain wording of the statute is argued in support of conflicting interpretations. The purchasers argue that because subsection (b) defines what information an “annual statement” must include, a document that does not contain this information cannot be an annual statement. Thus, the purchasers conclude that statutory
The parties also disagree about the nature of these statutory damages. Millennium argues that these damages are penal in nature because they bear no relation to a purchaser‘s actual damages when receiving a late annual statement. The purchasers respond that the Legislature did not intend for them to be a penalty because it labeled the recovery as “liquidated damages.”
The term “liquidated damages” ordinarily refers to an acceptable measure of damages that parties stipulate in advance will be assessed in the event of a contract breach. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 664 (Tex. 2005). The common law and the Uniform Commercial Code have long recognized a distinction between liquidated damages and penalties. See Stewart v. Basey, 150 Tex. 666, 245 S.W.2d 484, 485-486 (1952);
While we agree that this is true at common law, it does not always hold true for statutes. Aside from the 2001 amendments to the Property Code,4 twelve Texas statutes mention liquidated damages, nine of which involve the regulation of liquidated damage provisions in contracts.5
In 2001, the Legislature amended the Property Code to add, among other things, two provisions for “liquidated damages,” the provision at issue here,
In Brown v. De La Cruz, 156 S.W.3d 560 (Tex. 2004), we compared
This observation from Brown is instructive here because
We have found statutory damage schemes far less draconian than this one to be penal in nature. See Johnson v. Rolls, 97 Tex. 453, 79 S.W. 513, 514 (1904) (statutory liquidated damages awarded without reference to any actual loss or injury have “much the character of exemplary or punitive damages“); The Houston & Tex. Central Ry. Co. v. H.W. Harry & Bros., 63 Tex. 256, 260 (1885) (to the extent that an award of statutory damage exceeds the amount necessary to compensate plaintiff‘s injury, “the excess is but exemplary damage“). In fact, before the 2001 amendments, there was little doubt that the Legislature also thought of these damages as a penalty. At least that is how
As a penal statute,
The company hired by Millennium to service its financial transactions was apparently unaware of recently enacted disclosure requirements specifically applicable to executory contracts and accordingly sent these purchasers the same statements it typically used to service traditional mortgage loans. Those statements disclosed two of four items of information required by
III
The Fifth Circuit next asks whether a purchaser must prove actual harm or injury to recover statutory damages for an incomplete annual statement. We find nothing in the statute to suggest such a requirement. Moreover, to conclude that actual damages are a predicate to recovery under this statute would belie our conclusion that the liquidated damages provision is, in fact, punitive rather than compensatory. Accordingly, our answer to the second question certified is also, No.
Finally, the Fifth Circuit asks whether the “liquidated damages” imposed under this statute are also “exemplary damages” under
Because the incomplete annual statement here did not invoke the liquidated damages provision of
In summary, we conclude that an annual statement that omits some of the information required by
Justice WAINWRIGHT filed a concurring opinion.
Justice BRISTER filed a dissenting opinion joined by Chief Justice JEFFERSON and Justice GREEN.
Justice WAINWRIGHT, concurring.
In 1995, the Legislature amended chapter 5 of the Texas Property Code to address serious abuses in the acquisition of homes in the colonias. SENATE COMM. ON INT‘L RELATIONS, TRADE & TECH., BILL ANALYSIS, Tex. S.B. 336, 74th Leg., R.S. (1995); HOUSE COMM. ON BUS. & INDUS., BILL ANALYSIS, Tex. S.B. 336, 74th Leg., R.S. (1995); see also Act of May 24, 1995, 74th Leg., R.S. Ch. 994, § 1, 1995 Tex. Gen. Laws 4982. The colonias are substandard, generally impoverished, rural subdivisions that typically lack basic utilities and other infrastructure. SENATE COMM. ON INT‘L RELATIONS, TRADE & TECH., BILL ANALYSIS, Tex. S.B. 336, 74th Leg., R.S. (1995); HOUSE COMM. ON BUS. & INDUS., BILL ANALYSIS, Tex. S.B. 336, 74th Leg., R.S. (1995). Concentrated along the Texas border with Mexico, colonia residents almost always acquire residential lots through executory contracts called “contracts for deed” or “contracts for sale.” SENATE COMM. ON INT‘L RELATIONS, TRADE & TECH., BILL ANALY-
The Legislature found that purchasers had little legal protection under the contract-for-deed financing arrangement and no statutory right to critical information about the colonia property being purchased. Act of May 24, 1995, 74th Leg., R.S. Ch. 994, § 1, 1995 Tex. Gen. Laws 4982. Sellers have sold individual lots to two or more purchasers, sold lots without written contracts, and placed liens on lots subsequent to the sale without informing the purchasers and colonia residents. SENATE COMM. ON INT‘L RELATIONS, TRADE & TECH., BILL ANALYSIS, Tex. S.B. 336, 74th Leg., R.S. (1995); HOUSE COMM. ON BUS. & INDUS., BILL ANALYSIS, Tex. S.B. 336, 74th Leg., R.S. (1995). Colonia residents also complain that sellers frequently misrepresent the availability of water, sewer service, and other utilities, and that the residents are often not informed when property being sold lies in a flood plain or is otherwise unsuitable for habitation. SENATE COMM. ON INT‘L RELATIONS, TRADE & TECH., BILL ANALYSIS, Tex. S.B. 336, 74th Leg., R.S. (1995); HOUSE COMM. ON BUS. & INDUS., BILL ANALYSIS, Tex. S.B. 336, 74th Leg., R.S. (1995).
Although the Legislature considered a prohibition of contract-for-deed conveyances to end these abuses, it determined that many residents building homes in these areas need this method of financing because they do not have access to traditional mortgage financing. SENATE COMM. ON INT‘L RELATIONS, TRADE & TECH., BILL ANALYSIS, Tex. S.B. 336, 74th Leg., R.S. (1995); HOUSE COMM. ON BUS. & INDUS., BILL ANALYSIS, Tex. S.B. 336, 74th Leg., R.S. (1995); see also Act of May 24, 1995, 74th Leg., R.S. Ch. 994, § 1, 1995 Tex. Gen. Laws 4982. The contract-for-deed arrangement, however, allows low-income persons to purchase property and build homes on the property. Act of May 24, 1995, 74th Leg., R.S. Ch. 994, § 1, 1995 Tex. Gen. Laws 4982. To address the fraudulent and abusive conduct, the Legislature amended the statute in 2001, substantially increasing the monetary penalties and applying the protections statewide. HOUSE COMM. ON BUS. & INDUS., BILL ANALYSIS, Tex. S.B. 198, 77th Leg., R.S. (2001); see also Act of May 11, 2001, 77th Leg., R.S. Ch. 693, § 1, 2001 Tex. Gen. Laws 1319, 1327 (current version at
The Legislature‘s purpose is clear, but the statute‘s language complicates interpretation of the statute‘s provisions. This difficulty is evident in the certification of the statute‘s interpretation to our Court by the U.S. Court of Appeals for the Fifth Circuit, and, in answering the question, this Court‘s split decision. I join the Court‘s interpretation because it fulfills the Legislature‘s intent by giving effect to the penalties for a seller‘s noncompliance with the statute‘s disclosure requirements while not severely penalizing good faith efforts of sellers to comply.
However, the statute is deafeningly silent on the limits of the penalty. The penalty may be assessed at $250 a day for failure to provide the annual statement, but may the monetary penalties continue to accumulate without boundary?
Although the statute and the Court‘s opinion leave open this question, the U.S. Constitution may provide an answer. Punitive damages, a type of civil penalty, have been sanctioned by both this Court and the United States Supreme Court for many years. Punitive damages punish the civil wrongdoer and provide a disincentive to such future conduct. Transp. Ins. Co. v. Moriel, 879 S.W.2d 10, 17 (Tex. 1994); see also State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003). Although the states have discretion over the imposition of punitive damages, the U.S. Supreme Court has repeatedly recognized the existence of constitutional limits on these awards. Campbell, 538 U.S. at 416; Cooper Indus., Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 433-34 (2001); BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 562, 568 (1996); Honda Motor Co. v. Oberg, 512 U.S. 415, 420 (1994); TXO Prod. Corp. v. Alliance Res. Corp., 509 U.S. 443, 453-55 (1993) (plurality opinion); Pac. Mut. Life Ins. Co. v. Haslip, 499 U.S. 1, 18 (1991).
These cases stem from the Supreme Court‘s decision that constitutional limits of the states’ police power to fix civil monetary punishments for illegal acts constrain the states’ imposition of such fines when the “fines imposed are so grossly excessive as to amount to a deprivation of property without due process of law.” Waters-Pierce Oil Co. v. Texas, 212 U.S. 86, 107 (1909). In Waters-Pierce Oil Co., the Supreme Court upheld monetary fines imposed by Texas anti-trust laws. 212 U.S. at 112. In subsequent cases, the Supreme Court applied that standard to punitive damages, prohibiting the imposition of these awards in amounts that are “grossly excessive” in relation to the states’ interests of retribution and deterrence. Campbell, 538 U.S. at 416; Gore, 517 U.S. at 568. Civil penalties that arbitrarily and without reason deprive citizens of their property impinge individual rights to substantive due process. See Campbell, 538 U.S. at 417-18. Thus, although there are “no rigid benchmarks,” punitive damage awards exceeding a single-digit ratio between punitive and compensatory damages raise red flags. See Campbell, 538 U.S. at 425; see also Gore, 517 U.S. at 581-83; cf. Haslip, 499 U.S. at 23-24.
Justices dissenting to these decisions assert that the Due Process Clause erects only procedural due process hurdles to assessing civil punishment of tortfeasors and does not provide any substantive protections against excessive or unreasonable punitive damage awards. Campbell, 538 U.S. at 429 (Scalia, J., dissenting) (criticizing the Supreme Court‘s substantive due process constitutional limitation as “insusceptible of principled application“); see also, e.g., id. at 430 (Thomas, J., dissenting); Gore, 517 U.S. at 598-99 (Scalia, J., dissenting). Notwithstanding these dissents, the Supreme Court has established that the “Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a tortfeasor.” Campbell, 538 U.S. at 416 (majority opinion) (citing Cooper Indus., 532 U.S. at 433; Gore, 517 U.S. at 562). Reasonableness and pro-
Because the Court decides that Millennium complied with the statute and no penalties are awardable, it is not necessary to address limits on the amount of the civil penalties in this case. However, when the Court faces this issue for decision, we will be bound by constitutional precedents of the U.S. Supreme Court.
Justice BRISTER, joined by Chief Justice JEFFERSON and Justice GREEN, dissenting.
The Court answers three certified questions “No“, “No“, and “Not applicable“. As the express words of several statutes require each question to be answered affirmatively, I respectfully dissent.
In an effort to protect those who buy property by contract-for-deed, the Legislature mandated that various disclosures “shall” be made by sellers.1 Given the purposes behind the statute, there is no question the Legislature intended these disclosures to be mandatory.2
Among these mandatory disclosures is an annual statement.3 That statement “must include” seven listed items.4 To ensure compliance, failure to send an annual statement is punishable by “liquidated damages” of $250 per day plus attorney‘s fees.5
In answering the first certified question, the Court “strictly” construes the statute to require fewer items than the statute itself says “must” be included. That is not a very strict construction. Nor does it comply with the legislative mandate that we give the entire statute effect.6
In place of the seven statutory items an annual statement “must include,” the Court says the statement need only be “a good faith attempt... to inform the purchaser of the current status of their contractual relationship.”7 What items such an attempt might include is left for future litigation. After today, instead of a right to specific information, buyers have a right only to litigate whether the statement they got is good enough.
It is true that subsection (a) of the statute mandates annual statements, subsection (b) says what they must include, and subsection (c) states the consequences if a seller “fails to comply with Subsection (a).”
In place of the explicit statutory requirements, the Court adopts good-faith and
The third certified question inquires whether the “liquidated damages” imposed by this statute are “exemplary damages” subject to the substantive and procedural limits of
The purchasers argue that Chapter 41 is inapplicable because the damages sought here are designated in the statute as “liquidated” rather than “exemplary” damages. But the caps and other limits on exemplary damages cannot be avoided by simply calling them something else. Chapter 41 defines such damages by what they do, not what they are called. Similarly, “liquidated damages” in its ordinary meaning (which we must use as the annual-statement statute does not define the term)11 also turns on substance rather than sobriquet.12 Thus, whether Chapter 41 applies to the fees imposed here depends not on what they are called, but whether they are “a penalty or by way of punishment.”
The nature of fine here does not make that a difficult question. The fine is assessed daily, though nothing in either the statute or logic suggests how a missing annual statement would cause harm at that regular interval. Further, damages of $250 a day would total $7,500 a month and more than $90,000 a year, figures that all parties and amici assure us are well beyond both the sale price of these properties and the financial resources of those who buy them. And as the buyers themselves concede is the case here, the statutory damages accrue even if the buyers have suffered no damages whatsoever. As a matter of law, the damages imposed here are “a penalty or by way of punishment,” and Chapter 41 applies by its explicit terms.
Second, the examples the purchasers proffer do not support such exaggerated fears. Two of their examples—attorney‘s fees and discovery sanctions—are compensatory rather than punitive. Others either do not relate to a cause of action14 or were the subject of earlier exceptions expressly repealed by the Legislature.15
Finally, and most importantly, Chapter 41 expressly provides that its provisions “prevail over all other law to the extent of any conflict.”16 That leaves little room for exceptions. We cannot presume (as the purchasers do) that the drafters of Chapter 41 forgot about statutory fines like the one here; but even if they did, that would not authorize us to edit their draft.17 “If Parliament does not mean what it says, it must say so.”18
As to the second certified question, while the annual statement statute does not require proof of actual damages, Chapter 41 generally permits exemplary damages only if actual damages are more than nominal.19 But for causes of action accruing before September 1, 2003 (the time frame applicable to the claims here), actual damages were not a prerequisite if there was clear and convincing evidence of statutory malice.20
Thus, the answer to this question should be “Yes, absent clear-and-convincing evidence of malice.”
While the statute here plainly mandates a daily penalty for every minor omission from an annual statement, the provisions of Chapter 41 plainly ameliorate those penalties when there has been little or no harm. By construing the statutes this way, we might have avoided both eviscerating the annual-statement statute and bestowing financial bonanzas on those who fail to receive them. The answer to all three certified questions should be “Yes“; because the Court concludes otherwise, I respectfully dissent.